A comprehensive proposal for a retail Central Bank Digital Currency (CBDC) architecture has been unveiled by the Consultative Group on Innovation and the Digital Economy (CGIDE), an initiative under the Bank for International Settlements (BIS).

This initiative, created through collaboration among central banks in the Americas, aims to offer a foundational framework for the development of CBDCs tailored to individual jurisdictions’ policy objectives and technical requirements.

The CGIDE’s report, titled "A Proposal for a Retail Central Bank Digital Currency (CBDC) Architecture," serves as a starting point for broader discussions about functional CBDC solutions, focusing on inclusivity, efficiency, and security.

Key Objectives of the Proposal

The proposal emphasizes a hybrid CBDC model that leverages collaboration between central banks and private sector intermediaries. This model envisions central banks managing core infrastructure—including issuance, settlement, and governance—while private entities provide user-facing services. The design is adaptable, promoting a modular architecture that accommodates various jurisdictional needs and evolving technologies.

According to the CGIDE, the architecture’s flexibility ensures it can support both token-based and account-based models, allowing jurisdictions to implement designs that best suit their policy frameworks. The proposed infrastructure also prioritizes scalability, privacy, and user-centric design to meet the expectations of diverse stakeholders.

Core Processes in the CBDC Architecture

The proposal identifies four main processes critical to the operation of a retail CBDC system:

1. User Enrolment: Users will register on the CBDC platform through intermediaries, using a dedicated application that functions as a CBDC wallet. Depending on the jurisdiction, this process may involve standard Know Your Customer (KYC) procedures or anonymous registrations with limited transaction capabilities. Personal data collected during registration will be safeguarded, ensuring privacy compliance.
2. Creation of CBDC (Cash-In): This process involves converting commercial bank money into CBDC. Users initiate transactions through their wallet applications, transferring funds from their bank accounts to the CBDC platform. Upon successful AML validation, the CBDC registry credits the user’s wallet with the equivalent digital currency.
3. Destruction of CBDC (Cash-Out): CBDC withdrawal entails converting digital currency back into commercial bank balances or cash. The intermediary facilitates the transaction, ensuring compliance with user-specific limits and regulatory requirements. The process concludes with the registry debiting the CBDC wallet and notifying the user of the successful conversion.
4. Intra-Ledger Transfers: Transfers between CBDC wallets are streamlined through the platform, enabling seamless transactions across different user tiers. Intermediaries validate and process these transfers, maintaining compliance with predefined policies and procedures.

Technological Considerations

The CGIDE’s proposed architecture is built on high-level technical requirements published in December 2023. These requirements emphasize modularity, scalability, and interoperability. Privacy safeguards include encrypted data processing and minimization techniques to reduce exposure of personal information.

A token-based model is highlighted for its potential to support advanced functionalities, such as programmability and smart contracts. These features can enhance financial innovation, enabling solutions like automated settlements and cross-border interoperability. However, the architecture remains flexible enough to incorporate account-based systems with minimal modifications.

Advanced Functionalities and Applications

The proposal positions CBDCs as foundational tools for modern financial ecosystems.

According to the proposal, CBDCs can bridge traditional and decentralized finance - through tokenization and programmability - fostering liquidity and streamlining supply chain operations. For instance, smart contracts could automate delivery-versus-payment (DvP) processes, enhancing efficiency and reducing risks.

Additionally, the architecture supports offline payment capabilities to address connectivity challenges in remote or underserved areas. Examples from Peru and Ghana demonstrate how CBDCs can promote financial inclusion by offering solutions tailored to unbanked populations.

Conclusion and Future Directions

As central banks in the Americas navigate the evolving landscape of digital currencies, the CGIDE’s proposal offers a unified yet adaptable framework to guide their efforts. By fostering collaboration and innovation, the report aims to advance the development of secure, efficient, and inclusive payment systems.

Future work by the CGIDE will explore technical questions around privacy, decentralization, and tokenization. These efforts will further refine the proposed architecture, ensuring it remains responsive to emerging challenges and opportunities in the global financial system.

This initiative represents a significant step forward in shaping the future of digital payments, with the potential to influence CBDC development both regionally and globally.

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